Can a VA Loan Be Used to Buy Land? A Complete Guide

Purchasing land to build a home on is an exciting prospect for many buyers. The ability to design and build your perfect home from the ground up is appealing. However, financing empty land can be tricky. This is where VA loans come in handy for eligible borrowers.

VA loans are mortgage loans guaranteed by the U.S Department of Veterans Affairs They offer key benefits like no down payment and no monthly mortgage insurance. This makes them an attractive financing option for building a custom home.

But can you use a VA loan to buy land? The short answer is yes, but there are caveats. Keep reading to learn the ins and outs of utilizing a VA loan to purchase property to construct a home on.

Overview: Buying Land With a VA Mortgage Loan

The main thing to know is you can’t use a VA loan to purchase land only. The VA requires you to build a home on the land, and this must be done simultaneously with the land purchase.

So if you want to buy a vacant lot now and build later, a VA loan won’t work. But if you buy land and build right away, the VA will finance it.

Below are the three main options for leveraging your VA benefits to buy acreage to construct a home on:

• Use a VA construction loan to finance purchasing the land and building a home on it at the same time.

• Buy land with conventional financing. Then use a VA loan for just the home construction.

• Buy land and build the home with conventional financing first. Afterwards, refinance into a VA loan.

VA construction loans combine the land purchase price and construction costs into one mortgage. We’ll explore how these specialized VA loans work in more detail shortly.

VA Loan Requirements for Buying Land

To buy land and build with a VA mortgage, there are guidelines you must follow:

• The future home can be no more than four units. Each unit must have its own water, sewage, gas, and electric connections.

• You must occupy one unit as your primary residence.

• The home must meet VA minimum property standards and comply with all building codes.

• The land cannot be in a flood zone or high noise area near airports, railroads, etc.

• It cannot be near environmental hazards like landfills.

• It cannot be at risk for mudslides, sinkholes, or other geological issues.

In addition to general VA loan requirements, your builder must be VA-approved. The home must also be affixed to a permanent foundation.

Pros and Cons of Using a VA Loan to Buy Property

Below are some key upsides and downsides of leveraging your VA benefits to purchase land and build:

Pros

• Requires no down payment with full entitlement

• No monthly mortgage insurance payments

• Can roll land and construction costs into one VA loan

Cons

• Must build within one year, or VA loan must be refinanced

• Few lenders offer VA construction loans

• More rules to follow than conventional construction loans

• Limited to VA-approved builders

While allowed, VA construction loans are somewhat rare. And lenders that do offer them may have tough requirements, like a down payment.

How VA Construction Loans Work

If you find a lender willing to do a VA construction loan, here is a overview of the process:

• Get pre-approved and submit home building plans and specs.

• The lender issues the land purchase and initial construction funds.

• As building progresses, the lender distributes additional construction funds in “draws.”

• Once the home is finished, the loan converts to a permanent VA mortgage.

Then you begin making the official principal and interest payments on the combined land and construction costs. VA rules limit construction time to one year before the loan must be refinanced.

It’s important to note the loan term still begins when construction starts. This means if it takes 6 months to build, you’d have a 29.5 year term at the end. Resulting in slightly higher monthly payments.

Additionally, you can only use VA-approved builders for a VA construction loan. However, you can potentially have a builder go through the VA approval process if needed.

Alternatives to VA Construction Loans

Due to the difficulties with VA construction lending, you may want to consider these alternative options:

Use Conventional Financing for Land

• Buy land with cash, land loan, or personal loan

• Build home with VA construction loan

• End up with two separate loans

Use Conventional Financing for Land and Construction

• Buy land with cash, land loan or personal loan

• Build home with conventional construction loan

• Refinance into regular VA loan when complete

These options let you finance the land and home construction separately. This avoids the VA construction loan process.

The main benefit is you can likely qualify much easier. Then you can refinance into a normal VA loan with no down payment once the home is complete.

Tips for Buying Land With a VA Loan

If you have your heart set on buying property you want to build on with a VA loan, keep these tips in mind:

• Shop multiple lenders to find one that offers VA construction loans. Look for an experienced lender familiar with the VA building requirements.

• Research land thoroughly to ensure no VA-disqualifying factors. Thoroughly vetting property upfront prevents headaches.

• Hire a talented general contractor familiar with VA guidelines. This ensures construction goes smoothly.

• Get everything in writing upfront. Sign agreements detailing costs, timelines, and contingencies with lenders and builders.

• Build in a buffer in the construction timeline. Delays happen frequently, so leave wiggle room before the one year VA deadline.

• Consider alternative financing if you can’t find a lender to do a VA construction loan. Or if they require a down payment you can’t meet.

While buying land with a VA loan takes some extra work, it opens up more options for eligible buyers. For the chance to build your dream home on your own land, it’s an opportunity worth exploring.